Pharmaceutical Market

An Expert's View about Medical, Health and Cosmetics Products in Serbia

Last updated: 8 May 2011

Summary
The total market size for pharmaceutical products in Serbia in 2010 was approximately $1.10 billion and is expected to grow on average between 6-8% a year for each of the next five years, reaching $1.72 billion with a per capita consumption to $250 by 2015. With growth rates accelerating, several foreign companies including Actavis and Stada have made local acquisitions in recent years, providing further opportunities for foreign stakeholders. Additional foreign investment is expected in this sector in the coming years. In comparison to other countries in the region, Serbia’s current drug consumption per capita of $180 lags well behind most other Central and Eastern European markets.

Serbia operates a nationalized healthcare system, in which the government sets prices and subsidizes prescription medicines. Compared to the other countries in the region, the wholesale market is still fragmented and the presence of foreign-based wholesale players is rather limited. Distribution markups (6% for wholesale and 12% for retail) are relatively low in regional comparison.

The market is dominated by local producers for generic products. The largest of which are Hemofarm (owned by Stada), Actavis (which owns Zdravlje-Leskovac) and Galenika. Together, these firms control nearly 60% of the market in value terms. The remaining 40% of the market is predominately met by foreign companies. For non-generic and innovative therapies, foreign producers account for more than 90% of the market. Roche (Swiss), Pfizer (USA), Novartis (Denmark), and GSK (UK) are the largest foreign pharmaceutical companies operating in Serbia. According to U.S. export statistics released by the U.S. Census, the U.S. exported *$32 million worth of pharmaceutical preparations to Serbia in 2010, up from USD 12 million in 2004. Serbian pharmaceutical legislation is based on EU directives that require manufacturers to update their facilities in accordance with GMP standards.

(*This figure indicates direct merchandise exports from the U.S.to Serbia for pharmaceuticals and does not capture third country imports of U.S. products and services in the statistics provided).

Market Demand
With the exception of the dip associated with the global financial crisis, the Serbian pharmaceutical market has been characterized by rising demand over the past seven years. In 2011, the market was nearly three times higher than it was in 2004. In comparison to 2009 data, the Serbian pharma-market grew by 9.8%, which was due primarily the recovery of the economy, the sales of more expensive products, higher sales to the hospital market and rising OTC product sales volume. The OTC market represents 13-14% of the overall pharmaceutical market.

The hospital market accounts for about 20% of total drug sales and is financed by the Ministry of Health, by regional municipalities and through the Serbian Health Fund budget subsidies. Overall, however, the hospital market is under-financed and undersupplied with drugs and medical equipment.

According to the National Drug and Medical Device Agency (ALIMS) and The Ministry of Health, there are 25 registered domestic pharmaceutical manufacturers and 70 medical devices manufacturers operating in Serbia. In addition, there are 557 wholesalers of medicines and medical devices importing and marketing pharmaceutical products in the country. The five most important wholesalers are Velefarm, Farma Nova, Adoc, Erma, Farma and Logist.

As far as retail drug distribution is concerned, the Serbian Drug Act explicitly forbids the sales of any type of pharmaceuticals in any other outlets such as general stores. Pharmacies (Apoteka) are specific categories of shops for health related items and OTC products. Apoteka cannot influence the market because the products they sell are specified in a list approved by the Ministry of Health for sales, distribution and reimbursement. The pharmacy network is saturated in Serbia to the point where there can be up to a dozen pharmacies in operation within a few hundred meters of each other. The overall number of pharmacies in Serbia is around 2000, out of which 600 are state-owned. The remaining 1,400 are privately owned.

Overall, the condition of the healthcare system in Serbia is gradually improving, with investments from foreign agencies financing the refurbishment or development of health centers. In the medium term the Government’s task is to reform health product standards to bring them in line with European Union regulations. To help contain rising costs, primary and secondary care is being shifted to emphasize more outpatient treatment. This is likely to stimulate the development of private healthcare providers. The ongoing reform of the Serbian Health Fund is also a high priority, which when completed should introduce more control and accountability as to where and how funds are being spent.

Market Data
Serbia continues to recover from the effects of the global financial crisis. After experiencing some of the highest growth rates in Europe between 2001 and 2008 (average 6% growth), the country experienced a 3% contraction in GDP growth in 2009. In 2010, the Serbian government introduced a set of anti-crisis measures and was able stabilize the country’s economy. As such, Serbia in 2010 performed better than most countries in the region, with a small increase in GDP of 1.5 percent. Overall, however, unemployment remains at unacceptably high levels (currently around 19.2 percent), and wages remain under pressure. During the past year average real wages fell by 2.4% while pension wages dropped by nearly 4%. Inflation in 2010 stood at 11.5 percent, which was higher than projected at the beginning of the year. Exports grew faster than imports, thus slightly reducing the enormous trade deficit that characterizes the Serbian economy. The dinar slid considerably in value against the euro and the dollar last year (dropping by roughly 11.5%). This was despite significant intervention by the Central Bank of Serbia, which made currency trades totaling nearly USD $2 billion to support the dinar. This trend is expected to continue in 2011. The most detrimental effects of the economic crisis on Serbia were the diminished inflow of foreign direct investment and lack of liquidity in the market.

According to preliminary estimates, net foreign direct investment (FDI) inflow amounted to USD 1.2 billion in 2010, falling short of the projected USD 1.4 billion. At the beginning of 2010, the Government of Serbia adopted a comprehensive program of measures aimed at cushioning the impact of the global financial crisis and maintaining employment.

The Serbian Government’s plan for recovery is mostly based on financial assistance from international financial institutions. Apart from the deal with IMF, Serbia will continue issuing treasury securities to cover the 2010 gap (financed from IMF’s special allocations under the lender’s wider plan to boost global liquidity), loans from the World Bank, and grants and macro-financial assistance from the EU (EUR 200 million). The World Bank is expected to lend between USD 800 million and USD one billion to Serbia in 2011 with part of this sum used for public debt servicing. In December 2010, Serbia reached an agreement with the World Bank to use the lender’s guarantee instrument in the future, in what will facilitate the country’s access to commercial financial markets at a time when foreign investor interest is subdued.

Still, real economic activity is not fully captured in either official or IMF statistics. The grey-market economy accounts for a sizeable percentage of GDP, indicating that there is more activity within the economy than government statistics indicate. As one of the largest markets in the region, second only to Romania, Serbia is moving to capture foreign business interest. Additionally, as of the beginning of February 2010, a transitional commercial agreement between Serbia and European Union is in place, which will further stimulate its appeal to foreign investors.

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Posted: 06 May 2011, last updated 8 May 2011

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